SHANGHAI, Mar. 25 (SMM) – SHFE copper prices started last Friday’s night session at RMB 45,650/mt, helped by a rebound in LME copper prices. The red metal hovered between RMB 45,350-45,550/mt after finding support at RMB 45,300/mt, and ended up RMB 190/mt at RMB 45,340/mt. During the trading hours, trading volumes totaled around 370,000 lots, while positions were barely changed. SHFE copper prices pulled back slightly after opening on Monday, and then fluctuated between RMB 45,050-45,150/mt after gaining support at RMB 44,900/mt. The red metal tested a low of RMB 44,860/mt during the afternoon trading session, and later followed LME copper prices up to finish up RMB 270/mt, or 0.6%, at RMB 45,420/mt on Monday. Trading volumes for the most active SHFE copper contract decreased by 231,000 lots, and positions gained 4,120 lots.
Copper was offered on Monday at a premium of RMB 50-130/mt in the Shanghai market. Traded prices were RMB 45,270-45,370/mt for standard-quality copper and RMB 45,330-45,450/mt for high-quality copper. Cargo holders continued to move goods to generate cash as SHFE copper prices lacked impetus to bounce back. There was some buying interest since last Friday, with prices for standard-quality copper rising on increasing demand. Copper prices remained firm due to shortages of goods, while downstream producers merely hunted for bargains, with transactions done mostly by speculators on Monday. As SHFE copper prices remained relatively low during the afternoon trading session, spot copper traded mostly at a premium of RMB 70-150/mt. Standard-quality copper was sold between RMB 45,300-45,430/mt with tight supply in the market.
SMM’s latest survey shows 65% of industry insiders believe LME copper prices will remain between USD 6,450-6,550/mt and SHFE copper at RMB 45,000-45,700/mt this week. These investors based their opinion partly on limited upward momentum of US stocks.
In China’s market, the high turnover rate in SHFE copper contracts increased market risk. Meanwhile, the positive technical indicators and strong resistance at higher levels may leave copper prices entrenched in a narrow band.
SHFE copper stocks, which grew by over 90,000 mt in two months, staged a slight fall last week, giving support to prices. The average operating rate at downstream processors is expected to rise to 72.98%, according to SMM research, a sign of improving copper consumption. However, as investors that had bought SHFE copper contract and sold LME copper earlier for arbitrage took profits, an influx of imported copper will cause oversupply pressure to grow again. In this context, these market players expect copper prices to hold steady this week.
25% of industry participants predict that LME copper will test support at USD 6,400/mt and SHFE copper will fall below RMB 45,000/mt. The US dollar index has risen above 80 and is heading toward the 60-day moving average, pressuring copper prices. The CFTC report showed net short positions in copper rose to 28,356 lots for the week of March 18.
The HSBC’s China manufacturing PMI hit an 18-month low in March, intensifying concerns over China’s recovery and hurting market confidence. China’s stock market is expected to decline given tightening liquidity, which will also weigh copper market on.
In physical market, Yangshan copper premiums have fallen to USD 90/mt on Monday, while the cash-to-three-month backwardation in LME copper dropped to USD 9/mt last Friday, leaving limited support to copper prices.
The remaining 10%, however, are more optimistic, anticipating that LME copper prices will climb above USD 6,550/mt and SHFE copper prices will bounce back to RMB 45,800/mt.
The US economic data turned out positive lately, reflecting that the country will strengthen after a weather-induced slowdown. Markets are optimistic about indicators in major economies due for release this week, including PMIs for the US, euro zone and Germany.
In China, news from several domestic smelters has garnered much attention. Jiangxi Copper expected increased exports from large Chinese copper smelters, while Jinchuan Group declared force majeure on copper concentrate purchases. These reports led some to expect that smelters may purchase copper from the markets, pushing up premiums for spot copper. Hence, SHFE copper prices may be more resistant to pressures arising from rising short positions.